The SplitTrader.com Newsletter Tuesday 06/05/2001 1 of 1
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In This Newsletter:
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Market Commentary - Bulls Regain Upper Hand
Definition of the Day
Tuesday's Split Announcements | None
Wednesday's Expirations
Plays - New - Updates - Drops
Wednesday's Play-of-the-Day - CEFT
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Market Commentary
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Bulls Regain Upper Hand
Data suggesting that the economy was getting weaker came fast and
furious this morning. It started with the one-two punch of lower
productivity numbers and higher unit labor costs. From January to
March, the amount of goods and services the average U.S. worker
cranks out fell more than in any other quarter in eight years,
dropping 1.2%, according to a revised government report. The
anemic pace at which employers have laid off workers compared the
viscous rate of the economic slowdown was cited as the main
reason for the decline. Going hand-in-hand with the lower output
numbers were increased labor costs, to the tune of a 6.3 percent
annual rate, previously reported at a 5.2 percent rate. The
first-quarter rate was the fastest since the fourth quarter of
1990, when it increased at a 6.8 percent pace. The decline in 1Q
productivity was 0.4% lower than expected, while the jump in
labor costs was 0.3% higher than Street expectations.
Sure, today's productivity news wasn't too encouraging, but if
you compare the first-quarter of 2001 with the same quarter last
year, productivity was ACTUALLY up 2.5 percent, a sign that at
least a part of the recent gains are likely to be preserved, even
with the economy ailing. Pessimists say that productivity in 2000
was driven by semiconductors, the Internet, and other innovations
UNLIKELY to be duplicated. We'll see.
OPEC decided today to keep oil output unchanged, making our
summer driving/vacation season a bit more expensive. Iraq's
surprise call to stop exporting oil yesterday is not, however,
expected to impact world oil markets. An emergency meeting will
held in July to review Iraq's rogue move.
On the optimistic side, consumer confidence rose in May for the
first time since October, suggesting that Americans are still
spending freely, banking on the fact that the five consecutive
rate cuts this year will soon find their way into the U.S.
markets, pulling us out of the wreckage. Bloomberg's confidence
index came in at 83.8, up slightly from the 82.4 reading in
April. The index had fallen in three straight surveys from a peak
of 100.39 in October. A third of the 1200+ participants in the
survey said they expect the economy to improve during the next
year, compared with 31 percent in April, while those expecting
more pain fell to 25 percent from 27 percent a month ago.
Judging from the spending activity generated from such high
consumer confidence, folks apparently have plenty of cash to
throw around. Congress' tax cut plan should put even more money
in consumers' pockets, adding fuel to the recovery. Checks
ranging anywhere from $100 to $300, and $600 for married couples
should be hitting our doorsteps sometime in October. Yahoo.
Add to that, fed funds futures predicting that there's a 100%
chance that Mr. Greenspan and his buddies will cut rates at least
25 basis in late June, along with a 24% possibility that the Fed
will trim for a sixth time by 50 basis points. Once again, we'll
see.
Checking out the major U.S. indices, investors spurned the
morning's productivity, labor, and OPEC news, instead focusing on
upbeat news from a few tech leaders.
After a squelched deal with Alcatel (+3.5%), Lucent Technologies
(+7.2%), the battered, fried, and fricasseed telecommunications-
equipment giant, pleased investors by reaffirming its fiscal 3Q
guidance at the Supercom Trade show in Atlanta, saying it saw
modest sequential GROWTH above the $5.9 billion in revenue it
logged in the 2Q. CEO Henry Schacht said LU also plans to step-up
its cost reduction efforts. Investors cheered, sending shares 8%
higher, or 67 cents, to $8.67. Don't forget, however, that LU is
down to $1.4 billion in cash, with more than $2.3 in debt, most
of it due by March of 2002.
Helping to drive the Dow and NASDAQ higher today was last night's
news from field-programmable gate array purveyor XLNX (+9.6%) and
telecom chipmaker CMVT (+15.1%). In its 3Q business update, XLNX
said cancellations and delays had slowed considerably, but
cautioned that it still expects to see revenues down 15-25% from
fiscal 4Q levels in 2001, ending March. Investors again focused
on the positive, sending XLNX up $4.02 to $45.61. Israeli call-
management-system maker CMVT, which beat First Call estimates by
a penny on record revenues Monday afternoon, surged on Tuesday,
also benefiting from an upgrade to Buy from Salomon. The firm did
wimp out, though, lowering CMVT's target to $100, citing an
"unjustifiable" decline in shares in recent months..
Biotech stocks were hotter than a Ricky Martin concert at an all-
girls school, courtesy of some kind words from J.P. Morgan. One
of the firm's analysts noted, "The biopharmaceutical business
model has proven to be an engine for growth with rapid sales
uptake and high margins leading to sustainable earnings growth."
Brilliant. Succinct. Could not have been said better by another
garden-variety sell-side analyst anywhere (whatever). They
recommended buying stocks with drugs already on the market, close
to commercial launch, or in late stages of development. What's
left? Talk about covering the bases? Okay, I'll stop.
JPM's bullish comments on CELG and HGSI sent the entire sector
stratospheric, with the BTK adding 32 points, or 5.1%, to 674,
above its February relative high of 667. Immediate resistance is
now at the 708-level. Shares of Cerus Corp. (CERS:+8.6%) added
$5.84 to $73.65 after saying that the nation's blood supply could
be made safe from Helinx bacteria-fighting technology. IDEC
Pharmaceuticals (IDEC:+8.1%) surged $5.61 to $74.57 after an
upgrade from Morgan Stanley, in which it predicted a blowout 2Q
fueled by strong sales of its cancer drug Retuxin. Finally, MYGN
popped 9%, or $6.45, to $77 after announcing that it found the
gene responsible for high cholesterol.
Checking the day's details, the Dow turned in an impressive day,
putting more distance between it and the 11,000-level, closing up
114 points at 11,176. The old-school index benefited mostly from
the tech and drug sector, with MSFT, INTC, HWP, SBC, MRK and JNJ
all finishing with gains. Holding back the blue chips were shares
of MO, DIS, and JPM. The 11,300-level is now near-term
resistance. Over at the NASDAQ, the tech-laden index posted its
fourth straight day of higher ground, just like the Dow,
finishing up 77 points higher at 2234, pushing past the index's
10, 20 and key 100-dmas in the process. Immediate resistance now
looms overhead with the May 22 intra-day high of 2326. Breadth on
the NYSE concluded with advancers outpacing decliners 18-11 and
by 23-14 on the NASDAQ. New highs beat new lows on the NYSE 20-11
and by 25-14 on the COMPX. Ninety-three of the NASDAQ's 100
largest companies (NDX) ended in the green. The SPX finished the
day up 16 points at 1283, now within 42 points of its 200-dma and
just 30 points from its relative high at 1313. The SPX is now up
some 15% from its April lows.
Bonds soared on premise that the weak economic data will spur
more easing by Greenspan and Co. The price of the two-year note
rose 4/32 to 100-8/32, sending the yield down to 4.11%. The five-
year note closed up 12/32, lowering its yield 9 basis points to
4.83%. Rounding out with the longer maturities, the 10-year
closed at 97-30/32, yielding 5.27%, down 7 basis points, and old
30-year bond ended with yield of 5.66%, down 4 basis points.
Sector winners were mostly tech-related, with semiconductors
leading the way (+6.7%), networking issues not far behind
(+5.1%), followed by biotech (BTK:+5.1%), software (GSO:+4.6%),
high-tech (TXX:+4.4) and gold, surprisingly (XAU:+1.2%).
Investors exited utilities (UTY-2.0%) and transports (TRAN:-
0.1%). By the way, the SOX blasted through its 5, 10, 20, 50, and
100-dmas, ending at 652. A push through 700, just 7% higher,
would be a huge positive, as the chips are one of the typical
leaders out of economic downturns.
Now comes the 64,000 question: can the COMPX follow through? Can
we push through 2326? The NASDAQ has not been above the 100-dma
since September of last year. Can the Dow add another 150 points,
possibly giving it the gas to make a run at all time highs
(11,700)? Is the SPX on its way to breaching 1313, ideally 1380,
to really open things up? Maybe. Volume was decent, with the NYSE
clearing over 1.1 billion shares and the NASDAQ logging 1.8
billion, but the volatility readings are of great concern. The
VIX (CBOE Volatility Index) is at 21, suggesting that fear has
all but left the market. Keep in mind that we are still coming
into earnings warnings season. Then again, based on what the Fed
has already done and what it promises to do (i.e.: avoid
recession by any and all reasonable means); and judging from
today's consumer confidence data and the market's spurning of the
higher labor cost numbers, folks are looking toward the end of
the year and basing their investment decisions on that premise.
Hey, things have to be getting better if AMZN still thinks it can
post pro-forma profits in its fourth quarter.
Matt Paolucci
Contributing Editor
www.splittrader.com
Definition of the Day
=====================
Point and Figure
One of the older charting techniques used in technical analysis. A
point and figure chart is constructed in a unique way using much
the same data as many other techniques. Price movement data is
plotted without regard to time.
For the complete definition, please go to:
http://www.splittrader.com/glossary/viewglossary.asp?glossaryid=296
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Tuesday's Split Announcements
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None
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Wednesday's Expirations by Payable Date
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None
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SplitTrader.com Plays
=====================
The PLAY LEGEND:
SplitTrader.com Play Recommendations.
Updates are just that - updates on continuing plays
New plays are brand new for the newsletter.
Closing plays are plays that we feel have lost the advantage.
You will see:
Stock Symbol, Company Name, Closing Price, (change for the week)
Picked at date and Change since picked
Terms:
BoD = Board of Directors meeting
ADV = Average Daily Volume
dma = daily moving average
On the SplitTrader.com website we have very detailed profiles
for the stocks we play. Please take the time to visit the site
and look up a stock's profile if you are interested in more
information.
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NEW PLAYS
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NEW SPLIT RUN PLAYS 06/05/01
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None
NEW SPLIT CANDIDATE PLAYS 06/05/01
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SRDX - SurModics, Inc. $58.00 -0.79 (+5.00)
This chemical provider to the medical industry has had a very
good year thus far. Since January first it is up 57.5%.
Moreover, it has been advancing in stages and bursts that result
in the stock moving higher without ever being heavily overbought.
SRDX just broke out of its current seven-week base on Monday and
did so on convincing volume of 266,000 shares. We decided to
wait one day for the inevitable pullback in order to get in at a
slightly better price. Tuesday's volume on the pullback move was
a heavy 440,000 shares, but we were encouraged by the fact that
most of this volume came in while the stock was advancing higher
into the close. We are also encouraged by the fact that the
stock only retraced as far as support at $50.40. Traders that
might be interested in getting into this high flyer could look to
do so on a break above today's high of $59.25 on volume that puts
the stock on track to do at least 300,000 for the day. This type
of move would be confirmation of the new uptrend in the stock.
Picked on June 5th @ $58.00
Change Since Picked 0.00
Stop Loss @ $54.00
NEW MOMENTUM PLAYS 06/05/01
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None
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UPDATES
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SPLIT RUN PLAY UPDATES 06/05/01
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None
SPLIT CANDIDATE PLAY UPDATES 06/05/01
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ASD - American Standard $67.35 +0.64 (+0.58)
ASD set a new closing high on Tuesday and appears as if it wants
to go higher. The stock was lifted $0.64 on moderate volume of
290,000 shares. We would have liked to see ASD's volume come in
over 400,000 shares, but will keep an eye on buying interest as
the stock heads towards $70.00. Support should come in around
$66 and resistance has become Tuesday's high of $67.46. We are
ratcheting up our stop to $66.00 to protect against a reversal.
Picked on May 6th @ $62.50
Change Since Picked +4.85
Stop Loss @ $66.00
===
BJ - BJ's Wholesale Club $51.31 +2.11 (+2.16)
BJ cranked it up on Tuesday, having plowed through the
psychological $50 level like a hot knife through butter. With
the stock resting comfortably over $51, we will be watching for
profit taking to take hold soon. That said we are raising our
stop up to $48.75 in order to protect our gains. Traders looking
to get into the warehouse retailer could look to do so on a
bounce off of $50 on volume of at least 800,000 shares traded for
the day.
Picked on May 27th @ $48.31
Change Since Picked +3.00
Stop Loss @ $48.75
===
BKH - Black Hills Corporation $55.20 -0.77 (-0.76)
Our energy play continued to base around the $55 level today.
The mild sell off was witnessed throughout the whole energy
sector, as investors continued to book profits. Support for BKH
has come in at $54.60 and resistance should rear its head again
at $56.35. Heavier resistance has come in at $58.50, so traders
should wait for a close above this level to protect against an
immediate reversal. Volume on any such breakout should be no
less than 350,000 shares for the day. Our stops remain at $52.25
to protect against a reversal.
Picked on May 20th @ $55.94
Change Since Picked -0.74
Stop Loss @ $52.25
===
CEFT - Concord EFS $51.34 +1.15 (+0.84)
CEFT notched a new closing high on Tuesday, putting to an end its
streak of three down days in a row. We are encouraged that the
stock was able to close over $50.50, but are still concerned that
resistance has held up at $51.50. If the broader market
cooperates tomorrow, we feel that CEFT has set itself up to
finally break through resistance at $51.50. Therefore, traders
looking to get into CEFT should wait for a definitive close above
this level accompanied by good volume of at least 3.9 million
shares for the day.
Picked on May 27th @ $50.60
Change Since Picked +0.74
Stop Loss @ $46.00
===
CIMA - Cima Labs Inc. $84.37 +6.34 (+9.62)
CIMA rocketed higher on the heels of bullish developments within
the biotech sector. Many new drugs are nearing FDA approval,
which tends to get investors interested in the whole sector. As
for our play, CIMA has now officially broken out of its previous
base. In addition, its MACD just issued a buy signal. However,
with today's $6.34 move higher, the stock has become very
vulnerable to a pullback. If you are considering opening a
position in CIMA, it might be wise to be patient and let the
stock come back towards support at today's low of $78.60 before
jumping into this biotech play. We are moving our stop up to
$80.00 to lock in some quick gains in this volatile stock.
Picked on May 29th @ $76.95
Change Since Picked +7.42
Stop Loss @ $80.00
===
HRB - H&R Block $63.73 +1.47 (+2.77)
HRB continued higher after its breakout on Monday. Shares gained
an additional $1.47 on Tuesday and volume remained strong, with
813,000 shares changing hands. With today's surge, HRB's MACD is
now decidedly positive and momentum seems to have shifted to the
upside. Although HRB couldn't hang on to all of its intraday
gains, it did manage to close in the upper half of its daily
range. Traders looking to initiate a position in HRB should wait
for the inevitable pullback to $62.50 before pulling the trigger.
We are moving our stops higher to $61.00 to protect our gains in
this play.
Picked on April 18th @ $52.85
Change since picked +10.88
Stop Loss @ $61.00
===
MTG - MGIC Investment $70.10 +1.05 (+1.47)
MTG made up some lost ground on Tuesday, and did so on improved
volume. MTG traded 530,000 shares and advanced back towards its
neckline. The key to MTG's next leg higher will be volume in the
session that it is able to close above $70.65. The more volume
we have on that day, the less likely it is that MTG will roll
back over. Traders may wish to time new entries with a close
above $70.65 on volume of at least 600,000 shares. Our stops
remain at $66.75 to protect on the downside.
Picked on May 31st @ $70.37
Change Since Picked -0.27
Stop Loss @ $66.75
MOMENTUM PLAY UPDATES 06/05/01
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BUCA - Buca, Inc. $22.69 +0.44 (+0.29)
BUCA has been slowly but surely recovering from last Thursday's
downdraft. The stock has put in three bullish hammer formations
in a row so buyers may be stepping back into this restaurant
play. However, BUCA did encounter resistance at its 5-dma of
$22.85 on Tuesday so we will be watching this level closely to
see that it doesn't create a problem going forward. Traders
looking to get into BUCA should wait until the stock can break up
through resistance at $24 before committing any capital to the
stock.
Picked on May 24th @ $25.15
Change Since Picked -2.46
Stop Loss @ $21.30
===
GTK - GTECH Holdings Corp. $38.80 +0.64 (+1.55)
This stock just won't give up. GTK made a new high during
Tuesday's session and closed in the upper half of its daily
range, leaving a bullish hammer formation on its chart. The only
troublesome aspect to today's move was that volume came in 35%
less than GTK's average daily volume. While we continue to see
signs of underlying weakness within GTK, the stock continues to
march higher. Therefore, we are again moving our stops higher in
order to lock in gains. Our stop now resides at $37.40. Traders
looking to initiate new positions can look to do so on a pullback
and subsequent bounce off support at $38.25 on volume of at least
350,000 shares.
Picked on April 20th @ $29.79
Change Since Picked +9.01
Stop Loss @ $37.40
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DROPS
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None
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Play of the Day (For Wednesday)
Tuesday, June 5, 2001
===============================
CEFT - Concord EFS $51.34 +1.15 (+0.84)
Tuesday's Comment:
CEFT notched a new closing high on Tuesday, putting to an
end its streak of three down days in a row. We are
encouraged that the stock was able to close over $50.50,
but are still concerned that resistance has held up at
$51.50. If the broader market cooperates tomorrow, we feel
that CEFT has set itself up to finally break through
resistance at $51.50. Therefore, traders looking to get
into CEFT should wait for a definitive close above this
level accompanied by good volume of at least 3.9 million
shares for the day.
Picked on May 27th @ $50.60
Change Since Picked +0.74
Stop Loss @ $46.00
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